Tech Inventor Sues Calif. Over Decades-Long Tax Residency Fight

Thursday, 01 May 2014 03:10 PM

By Andrea Billups

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Gilbert Hyatt, inventor of the single-chip microprocessor, has been in a decades-long battle with the state of California, which has charged that he owes back taxes from the early 1990s that now total — with interest — nearly $60 million.

For more than 20 years, the tech genius has been embroiled in a fight with the state's taxation agency, the California Franchise Tax Board (FTB), which said he owes back taxes for a six-month window from 1991 to 1992.

Gilbert, who moved from California to Las Vegas in 1991, responded that he was not a resident of the state at the time they said he lived there, and thus would not pay the taxes.

Since then, interest and fees have accrued to between $55 million and $60 million as Hyatt has mounted a legal battle against the FTB and the State Board of Equalization, winning a Supreme Court decision and a massive judgment along the way.

The soft-spoken engineer told Newsmax he is not giving up his fight as the case continues. He filed a federal lawsuit in April alleging that his due process and rights to equal protection have been abridged by the state, and claiming he has been singled out in a "vendetta."

"They don't need a good case. All they need to do is drag it out until the evidence disappears," Hyatt said. "They have a presumption of correctness — they are presumed to be correct and the taxpayer has to get evidence to disprove it.

"They drag it out long enough and in my case, the witnesses die, they forget, documents get destroyed, and the interest the whole time is just building up. Their case gets strengthened by their delays and my case diminishes because of my loss of witnesses and evidence and documents," the inventor said.

Hyatt, now 76, is well known for his numerous patents, including one for the first single-chip microprocessor, a tiny device that helped revolutionize the size of computers in their infancy and paved the way for technology that allows computers to fit on desktops.

Hyatt was born in New York City and moved to California in high school. He attended the University of California at Berkeley and become an electrical engineer who designed and developed computers starting in the early 1960s, when he founded the company Microcomputer Inc. The company eventually went out of business, but Hyatt continued his research and development work, licensing many of his patents to the Phillips Corp.

Hyatt moved to Las Vegas in 1991 and continued his work there. Soon, however, he heard from the state of California. It claimed he owed taxes for six months. He said he wasn't responsible for California taxes since he was a resident of Nevada. That disagreement continued, and past-due fees piled up as the FTB never completed its audit.

Hyatt said he felt lost in a system that was unending.

"They are contending two things," he said. "One, that I was a resident of California and owe them taxes. They also are contending that I was a nonresident and owe them taxes. They got you one way or they got you another way."

In 1998, Hyatt went to court asking, as a resident of Nevada, for the ability to be able to sue California over his treatment.

It was a state tort case, and went all the way to the Supreme Court, where all justices ruled in his favor and said he could sue California in Nevada.

At a jury trial later in Las Vegas, Hyatt was awarded a massive $398 million judgment, with Nevada determining that his privacy had been invaded and California had overstepped its power.

The state appealed the jury decision, and Hyatt now await a ruling on that appeal from the Nevada Supreme Court. If the court rules in his favor, the state of California is on the hook for payment of the judgment, which could also include his legal fees.

"Somebody has to stand up to them," Hyatt said of his long legal battle. "People live in fear of the FTB. Witnesses are reluctant to testify.

"They have retaliated against me because I have stood up to them and because I have won, especially at the U.S. Supreme Court. They have said all along that they are committed to get me, and I think their motive is even stronger now because I won in court."

"I think that it's important to note that the FTB has unlimited power. More than 20 years after I moved, they are still out there taking depositions, subpoenaing documents, and continuing with their investigation.

"This is an appeal process. They should have made their decisions and stood behind them. Instead, they continue to change their position and to take contradictory positions. That is absurd. They should not be allowed to get away with that."

William R. "Bill" Leonard, who won election in 2002 to one of the five seats on the California State Board of Equalization, told Newsmax that it certainly appears Hyatt is being singled out and targeted by the agency.

"It is an overreach. In my experience, no other case has gone on this long," said Leonard, who was on the board until 2010 and has also served in the California Assembly and the state Senate. "To have one person under the threat of tax prosecution is unique. It does amount to a persecution at this point."

Leonard, a Republican, noted the FTB has a reputation for its "very aggressive" pursuit of high-income earners.

"It's pretty much conceded that they have driven Tiger Woods out of California. They just pick on anyone successful and extract their due," Leonard said.

In cases of residency, "the most reliable witness should be the taxpayer who knows where he or she lives, but in this residency case, they simply say 'we don't believe you' and now he has to prove to the tax board that he did live there," Leonard said. "And they have rejected every proof that he has offered them. Now he's lost his ability to put on a proper offense, his ability to gather witnesses, and evidence is compromised."

The board has spent untold sums of taxpayer money pursuing Hyatt, something that has not escaped the eye of the California Taxpayers Association.

"We've been following tax disputes since the agency was founded and this one does really seem to be in a league of its own, just in terms of how long it has taken and the variety of issues that have been raised. It seems like a special case," David Kline, CalTax's vice president of communications and research, told Newsmax.

"It shouldn't take two decades to determine if someone is a resident or not. It should be a fairly straightforward determination," Kline said.

"At some point, you have to wonder whether the costs are justified based on the amounts that taxpayers have laid out. The FTB has hired outside lawyers in addition to using their own staff resources. It's a significant cost and it continues to grow," he said.

Leonard said many Californians are afraid of the FTB and its very public tax appeals process. Some wealthy celebrities, he added, will avoid fighting at all costs so their reputations won't be damaged and they won't be labeled tax scofflaws.

But Hyatt, he said, had no fear and will not cave.

"He has been pushed to the wall. They have already damaged his reputation. The bill is enormous if he pays the full amount. They thought they could get him to cave in and write them a big check. They were wrong. They picked on the wrong guy.

"Now they have to respond to his federal lawsuit. And their response ought to be interesting."

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